Sector and location drive NZ commercial property returns

Sector selection is central to any commercial property investment strategy, shaping both the returns an investor can expect and the risks they take to get there. Whether an investor has a specific sector in mind or is weighing up options across the board, understanding that balance is essential. This is particularly relevant in New Zealand, where the interest rate and inflation environment has moved through a number of phases in recent years, and further shifts remain possible given recent offshore events.

For commercial property investors, that uncertainty makes evidence-based sector selection more important than ever. Examining 20 years of data in a risk-return matrix across Auckland and Christchurch, we explore how the core commercial property sectors have performed and where opportunities lie.

Figure 1: Auckland’s risk-return matrix, 2006-2026

^{Source: JLL Research}

Auckland’s prime industrial sector continues to be one of the most sought-after asset classes. Driven by logistics, e-commerce, and a diverse mix of occupiers, well-located warehouses leased to strong tenants sit firmly in core plus territory, offering reliable returns with comparatively lower risk. Secondary industrial buildings can provide higher returns but carry more risk, placing them in the opportunistic quadrant.

The office market tells a story of two halves. Prime buildings attract quality tenants and offer stable, predictable income, sitting in the core quadrant. Secondary stock faces high vacancies and requires meaningful capital to meet modern sustainability and workplace expectations, placing it squarely in value-add territory. Retail is similarly divided, though perhaps not as you might expect. Large Format Retail (LFR) centres anchored by supermarkets or hardware stores are among Auckland's lowest-risk assets. Strong tenant covenants and consistent demand place them firmly in the core quadrant. Traditional CBD street retail, meanwhile, continues to navigate headwinds from e-commerce and changing consumer behaviour, landing in value-add territory.

Figure 2: Christchurch’s risk-return matrix, 2006-2026

^{Source: JLL Research}

Christchurch's industrial market stands out for its low volatility across all grades. Both prime and secondary assets cluster in the Core and Core Plus quadrants, underpinned by steady logistics demand as the South Island’s primary distribution hub.

Post-earthquake, Christchurch's prime office stock has been rebuilt to a high standard, attracting government and corporate tenants on long-term leases. This places prime office firmly in Core Plus territory, while secondary office remains an opportunistic play given the costs and risks of upgrading older stock.

In retail, Christchurch tells a different story from Auckland. LFR sits in the value-add quadrant, while CBD prime retail falls in the opportunistic quadrant. Together, they point to a market where post-earthquake transformation has created genuine opportunities for investors willing to take a longer-term view.

Across Auckland and Christchurch, the data points to one clear conclusion. Geography matters as much as sector selection. The same asset class can behave quite differently from one city to the next. A strategy that works well in one market may carry a very different risk profile in another. Whether drawn to core assets or value-add and opportunistic plays, investors benefit from understanding sector and location performance over the long term. This understanding is a powerful input into any investment decision.